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OFT to investigate debt management firms 8 November 2009

The watchdog has said that the aim of the compliance review is to gain a deeper insight into the evolving practices of debt management firms.

The review could also lead to the OFT taking formal action to stop any identified consumer harm.

Ray Watson, OFT Director of Consumer Credit, said that there had been a recent increase in formal OFT enforcement action, along with rising complaints and new problems emerging in the market, suggesting that some debt management businesses are still not meeting minimum standards.

“This review will help us identify those practices that are harming consumers, as well as the reasons for non-compliance, and will help us target our enforcement action.” He added.
As well as including a sweep of online debt management advertising, the review will also contain an online form for consumers wishing to complain about a licensee and a questionnaire to licensees involved in debt management.

The OFT added that since its last compliance review in November 2003 the debt management sector has undergone a marked change, becoming increasingly complex with a rapid rise in new entrants and a diverse range of business models, including more internet-based advertising. This comes as more and more consumers seek help for debt problems.

The OFT has already taken action against non-compliant traders in the market. Since April 2008 the OFT has undertaken 24 formal actions to either obtain undertakings, impose requirements, or refuse or revoke credit licences held by debt management businesses.
The industry has also been warned over misleading IVA mailings, 'look alike websites' and cold-calling.

The OFT added that tackling problems in the debt management sector is a high priority, due to the sizeable risk that consumers who suffer from distressed debt could end up in a worse, rather than better, financial position. Misleading advertising and poor quality debt advice can result in consumers being sold costly debt remedies that are inappropriate to their needs.

Kevin Still, director of debt solutions provider, EuroDebt, commenting on the announcement, said: “Since the last review in 2003 the debt management sector and the economy have changed dramatically. There has been a major influx of new players, many current or former secure loan brokers, networks and packagers. Track records vary from one provider to another and there needs to be better clarification and supervision of the sector as a whole with meaningful statistics on the performance of DMPs, much along the lines that we get from The Insolvency Service for IVAs and Bankruptcies. Similar figures are produced in Scotland for Protected Trust Deeds.”



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